Commercial properties are usually split into four asset types; short leased prime, long leased prime, short leased secondary and long leased secondary properties. The groups relate to location and the state that the property is in. For example a shop located on the high street would be classed as prime, whilst an office that is a little dated, located just outside of town would be secondary.
Long leases have always been the favourable option for businesses that can commit their time. But for the first time in four years the secondary market has overtaken the prime, according to research by Investment Property Databank (IPD). Last year prime long leases returned 4.1 per cent, whilst secondary long leases closed the gap with 3.6 per cent.
But prime short leases still offer a better chance of income growth with a yield of 7.8 per cent, whilst secondary short offer 1.4 per cent less.
Speaking of the change in the market, Phil Tily, Managing Director of IPD UK and Ireland said, “Commercial space is a key indicator of economic performance.2012 delivered the first good news for parts of the secondary market, and the question for 2013 is whether it will be a more level playing field over the next year.”
Commercial property values were also a concern as returns fell in 2012 to 2.7 per cent, a drop of 5.1 per cent from the previous year. The fall is being blamed on negative valuer sentiment.
The north/south divide was also brought back to attention as London property values rose by 5 per cent, whilst the rest of the UK saw a drop of 5.8 per cent.
Phil continued: “Property is dividing the UK as London returns and the regions lose value. The sector is also split between those with capital holds and others seeking income.
“Different investors have defined for themselves different objectives, and that is one of the beauties of real estate: its flexibility.”
